Written by Justo Torres.
When a grant is unexpectedly terminated—due to project changes, funding cuts or noncompliance—grantees often face financial obligations that cannot simply be canceled. These are known as uncancellable costs, and they refer to commitments that were made in good faith under the assumption that the project would continue as planned. Uncancellable costs are typically tied to legally binding agreements or long-term financial commitments.
Common examples include:
- Equipment purchases: Specialized equipment bought specifically for the project that cannot be returned or repurposed
- Service contracts: Agreements with consultants or vendors for deliverables scheduled beyond the termination date
- Personnel costs: Salary or severance obligations for staff hired under contract or grants
- Subawards or subcontracts: Financial commitments to partner organizations that have already started work based on the original grant timeline
- Facility leases (when allowable): Space rented specifically for the project that cannot be terminated early without penalties
- Custom materials or supplies: Items that were ordered or produced specifically for the project and cannot be used elsewhere
To be considered for reimbursement, these costs must have been reasonable, necessary and properly allocated to the grant before termination. Detailed documentation—such as signed contracts, purchase orders or lease agreements—is essential to justify these expenses to the funding agency.
To manage risk, organizations should plan ahead by including cancellation clauses in contracts, avoiding long-term commitments when possible and maintaining open communication with funders. While uncancellable costs can’t always be avoided, careful planning and documentation can reduce their financial impact and improve the chances of cost recovery after grant termination.
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